Agriculture is the principal sector of activity; the economy is heavily dependent on textiles and cotton.

Economic overview

The GDP's growth rate remained positive despite the international economic crisis of 2008-2009, thanks to the positive results of the agricultural sector. In recent years, the government made significant macro-economic reforms, which include the privatization of state-subsidized services, the institution of an anti-money laundering law, an increase in the harshness of punishment against the piracy of intellectual property and quick settlements for the disputes between investors. In the context of the fight against terrorism, the country has received substantial financial aid from the United States, an important factor for growth and economic stability. However, when this payments reached their end in October 2008, Pakistan asked aid from the IMF and adopted a stabilization plan which has obtained limited results. Despite a slight improvement, the country remains confronted with several difficulties: economic slowdown (insufficient 2012 and 2013 growth rates to cope with the country's demographic challenges), budgetary deficit (8% of GPD in 2013) and insufficient growth of tax receipts. The major threats to Pakistan's economy are: international high prices in oil barrels, inflation, raw materials prices, a deficit on the balance of payments and political insecurity and uncertainty.

Since 2011, economic activity has not been sufficient to meet the challenges facing the Pakistani society. Growth has been increasing from 4.4% in 2012 to 3.6% in 2013, inflation decreased in 2013 at 7.4% after 11% in 2012. The decrease in industrial production only testifies to the lack of investment and the chronic shortage of energy supply. The unemployment rate reached 6% in 2013. Life expectancy is only 65 years and less than 55% of the population is literate. Moreover, the increasing poverty (over 22% of the population lived below the poverty line in 2013) is the direct result of these economic difficulties and of problems of governance. Extreme poverty and underdevelopment are major problems, especially in rural areas. Lastly, the country's public debt stood at 66.2% of GDP in 2013, in slight increase compare to 2012.

The perspectives of growth for 2014 are at around 2.7% and the country's economic situation therefore remains fragile and uncertain.

Main industries

The agricultural sector is the main pillar of the Pakistani economy. It contributes 20% to the GDP and employs 45% of the active population. Wheat, rice, cotton, sugarcane, fruits, vegetables and tobacco are the chief crops. Cattle livestock farming is also very important. Pakistan is the 4th largest cotton producer in the world and has abundant natural resources, mainly copper, oil and gas.

The industrial sector has contributed to 26% to the GDP in 2013. The major industries are textile production (the largest source of foreign exchange revenue), oil refining, metal processing, and the production of cement and fertilizers. Maritime transport is also a significant activity.

The tertiary sector contributes to around half of the GDP (54% in 2013) and employs around 35% of the active population. Money transfers from Pakistanis working abroad create a considerable godsend financial income for the country.

Foreign trade overview

Despite its economic and political difficulties, Pakistan has taken steps to liberalize its trade and investments in the context of commitments made with the WTO, IMF, and the World Bank. The share of foreign trade in the country’s GDP is around 35%. The drop in global demand during 2008-9 resulted since then in a series of high trade deficits.

Pakistan's main customers in 2013 were the EU, the United States, the United Arab Emirates, China and Afghanistan. The EU is purchasing around 25% of all Pakistan exports (70% of textile exports in 2013). The main export commodities are cotton, textiles, clothing and cereals.

Its three main import partners are China, Saudi Arabia, the United Arab Emirates and the EU. Pakistan mainly imports fuels, oil, vehicles, iron and steel.

60 years after the establishment of diplomatic relations between the two countries, Pakistan and China continue to share the same strategic issue: how to counterbalance the Indian hegemony in Southern Asia. In addition to military cooperation, trade and investment also play a role and China's place as Pakistan's trading partner is becoming gradually more important.

Turkey, Saudi Arabia, Iran and the Golf countries are also among the country's largest trading partners.

The degradation of international trade will again impact - as it did in 2013 - through a slow down in export in 2014. This will further deepens the trade deficit.

FDI

In a context where global foreign investment increased by 10.9% in 2013, in particular in Europe (+25.2%) and in Latin America (+17.5%), FDI flows to developing economies reached a new high of US$759 billion. However macroeconomic fragility and policy uncertainties are driving investors to caution.

In 2013 FDI reached only USD 900 billion, with the telecommunications sector remaining the primary recipient of the FDI in Pakistan, followed by the financial and the energy sectors. However, FDI's flow remains very low due to different factors: lack of security, political instability, poor condition of its infrastructures, the non-respect of intellectual rights, the arbitrary administration of laws and regulations, the administrative resistance (federal and provincial) to open up its economy.

According to the UNCTAD report on world investments, the potential attractiveness of Pakistan for investments is lower than India, its neighbour, but equal to Sri-Lanka and Bangladesh. However, performance in terms of actual reception of FDI is poor and this situation will not improve because the country has a very negative image on the international level, since it is considered a rear base of Islamic terrorism. Since 2011, Pakistan's relationship with its foreign partners has worsened, which bodes poorly for the possible growth of FDI.

Despite this, many cooperation and equipment agreements have been signed recently with China, especially in the sectors of energy and defense. Turkey, Saudi Arabia, Iran and the Gulf countries are the other major investors in Pakistan.

Information on the 2013 FDI influx in this region can be accessed in the Global Investment Trade Monitor published in January 2014 by the United Nations Conference on Trade and Development (UNCTAD).